Guest Post: What to Do When - Not If - Inflation Gets Out Of Hand

Tyler Durden's picture

Submitted by Jeff Clark of Casey Research,

The cheek of it! They raised the price of my favorite ice cream.

Actually, they didn't increase the price; they reduced the container size.

I can now only get three servings for the same amount of money that used to give me four, so I'm buying ice cream more often.

Raising prices is one thing. I understand raw-ingredient price rises will be passed on.

But underhandedly reducing the amount they give you… that's another thing entirely. It just doesn't feel… honest.

You've noticed, I'm sure, how much gasoline is going up.

Food costs too are edging up.

My kids' college expenses, up.

Car prices, insurance premiums, household items – a list of necessities I can't go without. Regardless of one's income level or how tough life might get at times, one has to keep spending money on the basics. (This includes ice cream for only some people.)

According to the government, we're supposedly in a low-inflation environment. What happens if price inflation really takes off, reaching high levels – or worse, spirals out of control?

That's not a rhetorical question. Have you considered how you'll deal with rising costs? Are you sure your future income will even keep up with rising inflation?

Be honest: will you have enough savings to rely on? What's your plan?

If price inflation someday takes off – an outcome we honestly see no way around – nobody’s current standard of living can be maintained without an extremely effective plan for keeping up with inflation.

It's not that people won't get raises or cost of living adjustments at work, nor that they will all neglect to accumulate savings.

It's that the value of the dollars those things are in will be losing purchasing power at increasingly rapid rates. It will take more and more currency units to buy the same amount of gas and groceries and tuition. And ice cream.

I'm not talking science fiction here.

When the consequences of runaway debt, out-of-control deficit spending, and money-printing schemes come home to roost, it's not exactly a stretch to believe that high inflation will result.

We need a way to diffuse the impact this will have on our purchasing power. We need a strategy to protect our standard of living.

How will we accomplish this?

I suspect you know my answer, but here's a good example. You've undoubtedly heard about the drought in the Midwest and how it's impacted the corn crop. The price of corn has surged 50% in the past two months alone.

Commodity analysts say the price could rise another 20% or more as the drought continues.

(Click on image to enlarge)

While the price of gold constantly fluctuates, you would have experienced, on average, no inflation over the last 30 years if you'd used gold to purchase corn. Actually, right now, it'd be on the cheap side.

When you extrapolate this to other food items – and virtually everything else you buy – it's very liberating. Think about it: gold continues its safe-haven role as a reliable hedge against rising inflation.

I believe that those who save in gold will experience, on average, no cost increases in the things they buy and the services they use.

Their standard of living would not be impacted.

I think this kind of thinking is especially critical to adopt when you consider that supply and demand trends for gas and food dictate that prices will likely rise for a long time, and perhaps dramatically.

So how much will you need to make it through the upcoming inflation storm and come out unscathed?

Like all projections, assumptions abound. Here are mine for the following table. I'm assuming that:

  • The price of gold, on average and at a minimum, tracks the loss in purchasing power of whatever currency you use, and that it does so from current prices. Given gold's history, this is an easy assumption to make.
  • Gold sales, over time, capture the gain in gold and silver so that your purchasing power is preserved. (This doesn't mean I expect to sell at the top of the market; I expect we'll be selling gold as needed – if gold has not itself become a widely accepted currency again.)
  • We pay taxes on the gain. This will decrease our net gain, but there should still be gains. In the famous Weimar Germany hyperinflation, gold rose faster than the rate of hyperinflation.

To calculate how much we'll need, I looked at two components, the first being average monthly expenses. What would we use our gold and silver for? From corn to a house payment, it could be used for any good or service. After all, virtually nothing will escape rising inflation. Here are some of my items: groceries, gas, oil changes and other car maintenance, household items, eating out, pool service, pest service, groceries and gas again, eating out again, vitamins, movie tickets, doctor appointments, haircuts, pet grooming, kids who need some cash, gifts, and groceries and gas yet again. Groceries include ice cream, in my case. How many ounces of gold would cover these monthly expenses today?

And don't forget the big expenses – broken air conditioner, new vehicle, vacation… and I really don't think my daughter will want to get married at the county rec hall. How many ounces of gold would I need to cover such likely events in the future?

The point here is that you're probably going to need more ounces than you think. Look at your bank statement and assess how much you spend each month – and do it honestly.

The other part of the equation is how long we'll need to use gold and silver to cover those expenses. The potential duration of high inflation will dictate how much physical bullion we need stashed away. This is also probably longer than you think; in Weimar Germany, high inflation lasted two years – and then hyperinflation hit and lasted another two. Four years of high inflation. That's not kindling – that's a wildfire roaring through your back yard.

So here's how much gold you'll need, depending on your monthly expenses and how long high inflation lasts.

Every corn-based product on the grocery shelf will soon take a lot more dimes and dollars to buy. But wait – what if I used gold to buy corn?

Ounces of Gold Needed to Meet Expenses During High Inflation
Monthly expenses in US dollars Monthly expenses in gold, oz* Inflation Duration
6 months  1 year  18 months 2 years 3 years 4 years 5 years 
$500
0.31
1.9
3.7
5.6
7.5
11.2
15.0
18.7
$1,000
0.63
3.8
7.5
11.3
15.0
22.5
30.0
37.5
$2,000
1.25
7.5
15.0
22.5
30.0
45.0
60.0
75.0
$3,000
1.88
11.3
22.5
33.8
45.0
67.5
90.0
112.5
$4,000
2.50
15.0
30.0
45.0
60.0
90.0
120.0
150.0
$5,000
3.13
18.8
37.5
56.3
75.0
112.5
150.0
187.5
$10,000
6.25
37.5
75.0
112.5
150.0
225.0
300.0
375.0
$20,000
12.50
75.0
150.0
225.0
300.0
450.0
600.0
750.0
*Based on $1,600 gold price

 

If my monthly expenses are about $3,000/month, I need 45 ounces to cover two years of high inflation, and 90 if it lasts four years. Those already well off or who want to live like Doug Casey should use the bottom rows of the table. How much will you need?

Of course many of us own silver, too. Here's how many ounces we'd need, if we saved in silver.

Ounces of Silver Needed to Meet Expenses During High Inflation
Monthly expenses in US dollars Monthly expenses in silver, oz* Inflation Duration
6 months  1 year  18 months 2 years 3 years 4 years 5 years 
$500
17.9
107.1
214.2
321.3
428.4
642.6
856.8
1,071.0
$1,000
35.7
214.3
428.5
642.8
857.0
1,285.6
1,714.1
2,142.6
$2,000
71.4
428.5
857.0
1,285.6
1,714.1
2,571.1
3,428.2
4,285.2
$3,000
107.1
642.8
1,285.7
1,928.5
2,571.4
3,857.0
5,142.7
6,428.4
$4,000
142.9
857.1
1,714.2
2,571.3
3,428.4
5,142.6
6,856.8
8,571.0
$5,000
178.6
1,071.4
2,142.8
3,214.3
4,285.7
6,428.5
8,571.4
10,714.2
$10,000
357.1
2,142.6
4,285.0
6,427.8
8,570.4
1,2855.6
17,140.8
21,426.0
$20,000
714.3
4,285.7
8,571.4
12,857.0
17,142.7
25,714.1
34,285.4
42,856.8
*Based on $28 silver price

 

A $3,000 monthly budget needs 1,285 ounces to get through one year, or 3,857 ounces for three years.

I know these amounts probably sound like a lot. But here's the thing: if you don't save now in gold and silver, you're going to spend a whole lot more later.

What I've outlined here is exactly what gold and silver are for: to protect your purchasing power, your standard of living.

It's like having your own personal financial bomb shelter; the dollar will be blowing up all around you, but your finances are protected.

And the truth is, the amounts in the table are probably not enough. Unexpected expenses always come up. Or you may want a higher standard of living. And do you hope to leave some bullion to your heirs?

It's sobering to realize, but it deserves emphasis: if we're right about high inflation someday hitting our economy…

 

Most people don't own enough gold and silver.

If you think the amount of precious metals you've accumulated might be lacking, I strongly encourage you to put a plan in motion to save enough to meet your family's needs.

We have top recommended dealers in BIG GOLD, ones we've vetted that are trustworthy and have highly competitive prices. We also recommend a service that will deduct whatever amount you chose from your bank account and buy bullion for you automatically. And now, given how concerned we've been about the inflation that's coming, we've actually started our own service. You can check it all out in the current issue of BIG GOLD, risk-free. I can tell you that purchase premiums are incredibly low, due to a proprietary system that bids your order out to a network of dealers that compete for your business. We're already using it, and the response from other investors has been tremendous.

Whatever plan you adopt, my advice is to make sure you have a meaningful amount of bullion to withstand the firestorm that's almost mathematically certain to occur at this point. And now you know exactly how much gold you're going to need.

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ParkAveFlasher's picture

fo-ty ounce nuggetz, bitchez!

Rahm's picture

The excrement made physical contact with a hydro-electric powered oscillating air current distribution device.

ParkAveFlasher's picture

I'm thinking that when the excrement hits the rotor blades, it'll spray out as hollow point bullets.

hedgeless_horseman's picture

 

 

If you think the amount of precious metals you've accumulated might be lacking, I strongly encourage you to put a plan in motion to save enough to meet your family's needs.

Before you buy gold or silver, or make a plan, run through my absolutely free hyperinflation exercise: 

Try to go just one month without buying a single thing.  Then, take all the month's income you did not spend, and buy the things you missed the most during the last week.

Few cowboys win their first rodeo.

Dalago's picture

The system is made to fail.

Landotfree's picture

I would basically agree.  The use of the equation ie interest puts a shelf life on the system due to the need for exponential growth.  

The eventually outcome is fail after about a generation and/or 60-80+- years.  The only way to escape is to have unlimited power.

TwoShortPlanks's picture


From Casey again: During the 5 years of the Weimar collapse the price of Gold in fact rose at an average rate of 180% of the rate inflation (Gold v Inflation Weimar Germany). So as Inflation doubled and doubled again, Gold roughly quadrupled and quadrupled again! People who held a meaningful amount of Gold actually became wealthier and wealthier!

 

Of course nothing is ever simple, so I’ll attempt to explain something clearly and wildly fundamental which I believe Casey Research has overlooked. There is yet another component which is by far THE biggest factor of them all; it’s not the Inflation figure, it’s not the amount of Gold you own and it’s not how fast you spend what you have (within reason of course).

There are effectively four parts to wealth preservation in this scenario, they are;

1.       How much Gold you own at the beginning

2.       The rate at which you spend Gold

3.       How long you can hold-out before being forced to spend the Gold you have

4.       The X Factor, which I will explain now

The biggest [X] factor affecting how much Gold you need to own is actually…*insert Drum Roll*…the ratio between the ‘Global Funds’ and ‘Gold Holdings’ as of 2012.

                                                                                                                                                                                                                                                        

Consider this: Back in the days of Weimar Germany we still had close to 4.5 Billion ounces of Gold ever mined since the dawn of civilization, and the ratio between the amount of ‘Above Ground’ Gold in existence versus Global Industry, Global Assets and the Global Monetary System was a certain size…let’s call it 1:1 for argument sake. Today, in contrast, we have only 5 Billion ounces of ‘Above Ground’ Gold in existence however, the size of Global Industry/Assets/Money is vastly greater, also, the Global Monetary System now dwarfs Industry itself, in fact there’s $700 Trillion sitting out there, much of it accumulated since 1971.

 Let’s compare apples with apples, not apples with oranges!

 It’s safe to assume that-that ratio of 1:1 is now something like 1:10,000 (Gold versus Global Industry/Assets/Money). Even if only 20% of Global Wealth are liquid and able to chase the Gold price, that figure is around $140 Trillion, or, $28,000 chasing ever single ounce of Gold…assuming every ounce was on the market and for sale, which it most certainly isn’t!

 Don’t forget, you don’t just need cash to buy Gold, given that Gold can now be legally used as ‘Collateral’ and soon Tier1 Capital Asset, you can easily swap Real Estate Bonds, Equities, Stocks and Shares, Over the Counter Derivatives (OCDs)…almost anything!

 Question 1: Given that the amount of liquid assets able to chase Gold in circulation has increased by at least 2,000 fold (20% of 10,000), do you think this would affect the Weimar Gold to Inflation rate of 180%???

 Given that your response to the question is a simple ‘Derrrr, of course!’, then…

 Question 2: Now how much Gold do you think you’d need NOW given that there is 200,000% as much liquidity freely able to chase Gold and yet Gold has only increased by a mere 20%???

 Now, I know the article is aimed at the average investor, but ask yourself, how accurate is it, and how relevant is it if Hyperinflation hit today?

DCFusor's picture

Wow, that's sage as hell, and I know from experience just how true it is.  It really re-aligns ones priorities in a positive way.  Kind of tough if you have a girlfriend, but maybe if that spend rate is all she's there for, you're better off anyway.

I "dropped out" of the normal wage slave life in '79, used my meager retirement fund to buy raw land (some farmable) and built from there.  It was one hell of a lot more difficult than those who think a bugout bag is all they need can possibly imagine, but I pulled it off and it's all good now - and now I know a few things I didn't know about before re what's important in life and what things are truly worth.  At some point I got the farmstead into good enough shape to start and run a business that was very profitable, and this time - I didn't spend the money on useless junk destined for the trash can or crapper in short order, but real assets, tools, capabilities, and it's been a damn good plan.

Off grid solar, which also runs that car everyone loves to hate here (don't you dare drive one and find out how good it really is - you'll have some dissonance if you do).

Machine shop - I can make or fix nearly anything - even parts for my fusor experiments.

Farm - hey man, I got food.  Most have no idea how hard dirt farming is, and there IS a learning curve, it's not for paper pushers who only think they are smart.  Meet some sucessful farmers and see if they're not smarter than you are and about more things - just do it.

Land - if you don't like what I'm doing, get off my land, you're trespassing if you even know I'm here.  And it's defensible.

Point is, this didn't take two months - it took about 3 decades...maybe a smarter and stronger guy could have done it quicker, dunno, I'm pretty much both and it was still hard.

And I'm still not really self sufficient, but pretty good compared to most and between the neigbors we might be, dunno.  I do know I've used exactly 18.5 gal of gasoline in 2012 in that car and in backup generators.  How much do you need in a week?  Who are you paying that money to in the end, and are they your friends?  Or do we have to tack the cost of the military onto the true price of gasoline (and a lot of other things)?

 

 

Nobody For President's picture

Right on DCF - especially how much work it takes. It ain't a project - it's a process. I've been at it 4 decades off the grid, and am pretty settled. Don't farm though, just fruit trees and a garden. Lots of deer about, could change my vegetarian ways if I had to... Good water supply, good tools,  and tools to maintain them, good shop, adequate energy - but I still really hope the stuff does not hit the fan to the point I gotta go it alone (with my neighbors - good folks). But I can if I have to. 

But it does take a shitload of work to be your own water department, sanitary district, building contractor, electrician, arborolist, plumber (I hate plumbing, but I do it), roofer, wildlife manager (just try keeping the fucking bears out of your bee colonies), and general handyman/maintenance person. Just about the time you get reasonably good at something, you're done with the job and on to another one with a new learning curve. And when the power goes out or the water stops - you are IT muther, and need to get on it right NOW - and no matter how many times I have risen to the task, it always is a gut check when I have to grab the plumbing back pack and head up the water line, or grab the multi-tester and head for the Outback solar system. 

Homesteaders off grid are some of the last generalists in the US of A.

I love it!

Sedaeng's picture

very well stated sir!

I look forward to following your lead. I just hope I can learn quickly enough to survive the shit storm that is coming...

 

 

 

 

 

 

rambo1028's picture

I was just thinking about this very subject on the way home today. I want desperately to become more self sufficient but where to start seems so extremely overwhelming. I guess I came to the conclusion that it may be too late...

ziggy59's picture

Bitcoin exchange hacked...

BitCoin Exchange Loses $250,0000 After Unencrypted Keys Stolen

http://www.pcworld.com/businesscenter/article/261894/bitcoin_exchange_lo...

Anyone holding digits instead of hard assets is holding diddly

The crooks love people to trust their invisible investments

smiler03's picture

+1 Great link. 

 

Now who didn't see that coming. The currency of hackers got hacked.

Half_A_Billion_Hollow_Points's picture

one website got hacked.  not the currency.  Just like corzine vaporized the gold, some dude vaporized some other dude's btc.  

 

I hold bullion in my possession.  But I also hold btc, and it has way more upswing.  Soon we're going to have ASICs and most probably a bitcoin mastercard.  Then the game is on.  

 

Sorry to diffuse your FUD

All Out Of Bubblegum's picture

LOL! So if someone breaks into your house and takes your cash, it's the money's fault?

I bought bitcoins at $4 last year and held most of it when it hit $30. I kept it when it went to $2. At almost $11, my bitcoins are outperforming the dollar, gold, the Sucker's Exchanges in NYC and just about any other hard asset you can name.

Good luck in the crash. You're gonna need it!

BooMushroom's picture

A bitcoin MasterCard would be pretty dope, it would solve one of the major problems with the currency. I always wondered how people would spend their bitcoins for regular stuff like rent and food. A MasterCard would fix that right up.

NidStyles's picture

How doe we know it wasn't the creator of it that did it? That's the point, if a man is in charge, then a man can act immorally and screw everyone else. 

El Tuco's picture

How about this experiment to fight inflation. Cancel Cable, cut your land line, stop going out to eat, cook at home, cut your own grass, keep your car for 15 years +, wash it in your driveway, and stop looking at what other people have because it's the banks anyway, and there are many more creative ways to keep what is yours and stop feeding the beast.

Food and gas, that is all.

It's amazing how good it feels when you can tell everyone to go fuck off because there is nothing I want a very little that I need.

 

LawsofPhysics's picture

Spot on!  Well, at least until the zombies show up for your flesh because nothing can be delivered in the urban areas.

steve from virginia's picture

 

Get rid of the fucking car ...

 

What do you think is pushing up non-durable goods' prices?

 

The car is a useless toy that requires 3 months of labor to pay for. Less than three months would be required to walk places. Owning a car is to be a sucker for big business.

 

Why do you think there is the 'big government' that everyone hates? Car. Massive car infrastructure needs a gigantic government to manage it and provide endless financing (deficits) for it.

 

Do yrself a favor and sell the car to some other sucker ... while you can.

LawsofPhysics's picture

Unfortunately, I still use my tractors a lot.

But, then again, once the cities start emptying, the sharecroppers I can hire for peanuts may be able to do things cheaper.  So your arguement may still hold water.  I like it.

BooMushroom's picture

Room and board for a family of four is currently averaging well over a thousand USD per month. Food for same is ~$500.

$1500/month is more than minimum wage for one person. So if you provide room, board, and security, everyone will be happy when U-6 is 40%. In fact, there are probably some people in Greece and Spain right now who would take you up on it.

10mm's picture

Me and boys got a little something for the urban shit heads.

JuliaS's picture

I haven't bought a single thing last month. Though, next month I'm not going to buy the thing I missed the most, cause I still won't have any money.

Dr. Sandi's picture

To summarize the topic, I believe Obama's speech writers have moved to the countryside with many weapons they'd love to use on city dwellers and have become self sufficient because of canny gold and silver purchases.

Everybodys All American's picture

The Empty Suit is just reading the telepromptor but with inflection and feeling so please give him a break.

Diogenes's picture

Reminds me of an old Wizard of Id cartoon.

Lackey: Sire, the  election is coming up soon

King: Do you have that list of campaign promises I used last time?

Lackey: Here they are.

King: Did I keep any of them?

Lackey: No, sire.

King: Good, I can use them  again.

q99x2's picture

Eat silver that hasn't gone up since the 80s.

Dr. Sandi's picture

My lederhosen have no grasshoppers

BooMushroom's picture

Remind me again what the USD and the stock market have done since then.

francis_sawyer's picture

Yo man ~! why u don't gimme, like, one McNugget... I got fitty five cent CASH MONEY!

ParkAveFlasher's picture

immah pay you wi' mah gol' TEEF.  yup yup, immah gladly pay you tuesday.

vato poco's picture

"Teefusses", Dawg. "I'ma pay you wit mah gol' TEEFUSSES on Tuesday." In times of societal upheaval and economic strife such as these, it is incumbent upon us all to set an example and speak properly. Otherwise, afer all, we'd be no better than animals.

Mr Pink's picture

Best way to make sure people wont complain about rising food prices?  Give the entire nation food stamps! I don't see any welfare queens checking prices, clipping coupons or buying rice or potatoes. They are loading up on soda, chips and cookies!

BooMushroom's picture

It would be interesting to stop someone with a cart of Frito-Lay, Coke, and Keebler, and show them what they could have bought instead, if they bought fruits and veggies, tea and coffee (or even koolaid!), and meat and grains.

But they would tell you two things:
1. I can't spend the money I saved on other stuff.
2. Now I have to COOK! That seems like work.

Landotfree's picture

Inflation topped out in dollar terms in 2007 based on one quarter of that year the credit system was expanding by an annual rate of around $4.7T.   By 2008-2009, credit expansion went basically negative.  Now the dead cat bounce you are see about $1.2T annual credit expansion, however this is trying to fuel the $53T US credit market system and the $200T worldwide credit system.   Inflation topped out in percentage terms in the 80s which was easily expanding at double digits.  Eventually the dead cat bounce will be over and you will be back into collapse time.   

Inflation has been dead for 5 years and will for the most part be dead for the remainer of my life.   

The system has hit it's peak which was fuel for 6+ decades, it will be followed by the biggest collapse the world has ever seen.  You are still in the first inning of this, this will play out over many decades.  What you are witness is actually kind of a cool event if you ask me, of course the chaos will be quite scary.    Sorry you will not be able to feed 7 billion without a functioning global credit system.  Once it goes, all the unfunded liabilities walking around are going to go the way of the dinosaur. 

otto skorzeny's picture

good post- watch out for the blowback from ZHers

Landotfree's picture

Very true.  :)

I love people who believe the Benny Helicopter lie, there are no helicopters and even if they were helicopters they are not going to save the unfunded liabilities from being thrown into the fire pit.  All I see are billions of unfunded liabilities walking around pretending the Benny's helicopter is coming.   

The just recycle the same lie they have been telling for 1000s of years, use the words helicopter and the lemmings believe them yet again.   It's kind of fun to watch in a way.   Humans are so predictable.  

LawsofPhysics's picture

Right, how's that zero interest rate policy (ZIRP) working out again?    Following your logic, once NIRP (negative interest rate policy) becomes public policy the bank will pay me to take out another business loan. - FAIL

Well you are correct, humans are predictable, and stupid.

 didn't junk you, unfunded liabilities indeed.

Landotfree's picture

Humans continue to make the same choices expecting a different outcome, the outcome will be the same everytime.   Humans usually win the battles against the equation, but the equation always wins the war.   What you are going to witness  has already happened.   The most the humans can do is bring on further delay like Neo did, the outcome has always been known.  

Different choices can produce different results but I can't say they were be better results, at the end of the day systems appear to always collapse.

"The Architect - Denial is the most predictable of all human responses. But, rest assured, this will be the sixth time we have destroyed it, and we have become exceedingly efficient at it. " - The Matrix

ZerOhead's picture

Let's see if I've got this right...

Credit collapse > Banking system collapse > Global Economic collapse > TEOTWAWKI where cockroaches reign supreme above all EXCEPT the increasing purchasing power of the US dollar?

I think I need to educate myself better by watching The Matrix more often...

LawsofPhysics's picture

Stop it, you sound like a desperate graduate student.  In the real world, there are still plenty of real things and innovation that needs to be delivered.  Stop with the mental masterbation, now you just sound silly.

Marla And Me's picture

Mako just likes to riddle people into understanding the exponential function.  Once you get it (and from what I've read from you, you understand it perfectly well), it really changes one's outlook.  Like B9K9 so artfully used to say, it is useless to complain about the chain of events that is taking place as the math requires it.  Simply hedge accordingly, and prepare for the bottleneck.  You are readier than most.

silverserfer's picture

somebody has been subscribing to the graham summers deflatioanry colapse newsletter. Dinosaurs who thing that the dollar is gong to get strong again and gold back to $250 ok buddy!

Marla And Me's picture

Good to see you again Mako.  I like the new moniker.  Your writing style gives you away.  Bartlett said it best: "[t]he greatest shortcoming of the human race is our inability to understand the exponential function."